Chosen, or Exclusive?

My knowledge of Judaism, particularly modern Judaism, is extremely limited. That said, I believe that there is a "chosen people" mentality through most sects of the religion, particularly the further back you look. You cannot become an orthodox jew by conversion, you have to be born into it (A Jewish friend told me this, he may not be a reliable source). Some are more welcoming, I have a friend with aspirations to become a rabbi, and he is well on his way. When looking at the psalms, my question is whether this mentality is born out of a reflection of the way of the world, which shows that they are the chosen people, or if the religion itself was naturally exclusive- and what effect this has had.
Let’s take a look at some specific psalms. Psalm 33 says “Happy the nation whose god is the LORD, the people He chose as estate for Him”. In psalm 50, God speaks directly to the Israelites “Hear, O My people, that I may speak, Israel, that I witness to you. God your God I am”. This seems to specify the Israelites as god’s chosen people. But if you look at the body of the psalms, you see just as many praising god for treating his people well as asking him to end their suffering. In theory, god favors the Israelites, but in reality the Israelites seem to suffer defeats as often as losses, and individuals experience suffering as often as satisfaction.
The “Chosen People” idea starts to look more like a policy of exclusivity when we look at psalms 55 and 58. Psalm 55 is the first psalm in which specific “enemies” are mentioned- “for many were against me- Ishmael and Jalam and the dweller in the east, who never will change and do not fear god”. Was this true, or did the Israelites decide that these others could not be favored by god? When we look at Psalm 58, which says “the wicked backslide from the very womb, the lie-mongers go astray from birth” we see that the belief in predestination is quite strong. Additionally, there are the many psalms which ask for forgiveness while cursing the enemy for the same sins- thereby indicating a belief that god should prefer the Israelites regardless of action.
How has this influenced their culture throughout history? The “Chosen People” principled has evolved and changed over time, visible now in the strong sense of family and tradition within the Jewish culture. There are obvious benefits to this- it has lent strength to a very persecuted people, who were enslaved by the Egyptians and persecuted by the Nazis- and this persecution only strengthened that cultural solidarity. In some ways, however, this may be a self-perpetuating cycle. A culture which closes itself off (by only marrying within itself, for example) and keeps itself separate integrates much more slowly with other cultures. This lack of integration in Germany may have made it that much easier for the Nazi’s to make the Jews the undeserving scapegoats of Germany’s problems- Hitler and those with him exploited this sense of family and tradition by singling out the Jewish people as “the enemy”. I cannot say whether this is any way historically valid, but it does seem like something the Nazi’s would not have hesitated to twist to their advantage. Either way, it is a thought.
Also interesting are the similarities (though they are obviously different in intention and action) between the original idea of the “chosen people” and the idea of Aryan supremacy. Could the latter perhaps have been a violent reaction to the former? Could they have been connected in some other way?